[OKRA] Paper mills foresee higher OCC prices this year

[Ellen Bussert]

Got Cardboard?  If you are interested in what is happening in the OCC
market (cardboard) this article will be of interest to you.

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Paper mills foresee higher OCC prices this year
<https://resource-recycling.com/recycling/2021/06/02/paper-mills-foresee-higher-occ-prices-this-year/>
Published: June 2, 2021
Updated: June 2, 2021
by Colin Staub <https://resource-recycling.com/recycling/author/colinstaub/>
[image: Baled OCC stacked for recycling.]

*Recovered fiber end users detailed the impacts of rising OCC prices in
their quarterly reports.* | *BAO Images Bildaentur / Shutterstock*

Major recovered paper end users anticipate paying more for feedstock as
2021 progresses, according to recent statements from company executives.
Mill operators also shared updates on their recycled fiber capacity
expansions.

Paper mills experienced a turbulent year for fiber sourcing in 2020, when
OCC prices skyrocketed
<https://resource-recycling.com/recycling/2020/05/19/occ-supply-shortfalls-drive-up-prices/>
from
$25 per ton in January to $107 per ton just four months later, according to
RecyclingMarkets.net. Prices leveled off and remained around $55 to $65 per
ton for the remainder of the year, but they have slowly crept back up again
in 2021.

As of May, the fiber grade was sitting at $97 per ton, according to
RecyclingMarkets.net
<https://resource-recycling.com/recycling/2021/05/11/curbside-plastic-prices-increase-sharply/>
.

Major publicly traded paper mill companies frequently discuss recovered
fiber pricing dynamics during their earnings calls. In recent weeks,
Cascades, Domtar, Graphic Packaging, International Paper, Packaging
Corporation of America, Sonoco and WestRock touched on OCC trends and mill
projects in discussing the first financial quarter of 2021.

For recycling operators, a major takeaway is that material buyers expect to
be forced to pay current or higher prices for the remainder of 2021.
‘High domestic demand levels’

International Paper, which is among the largest paper companies in the
world, reported
<https://www.fool.com/earnings/call-transcripts/2021/04/29/international-paper-co-ip-q1-2021-earnings-call-tr/>
that
“higher recovered fiber costs were another significant headwind in the
quarter.” Mill operators Graphic Packaging
<https://www.fool.com/earnings/call-transcripts/2021/04/27/graphic-packaging-holding-co-gpk-q1-2021-earnings/>
, Sonoco
<https://www.fool.com/earnings/call-transcripts/2021/04/22/sonoco-products-co-son-q1-2021-earnings-call-trans/>
 and WestRock
<https://www.fool.com/earnings/call-transcripts/2021/05/05/westrock-wrk-q2-2021-earnings-call-transcript/>
reported
the same.

Cascades, a Canadian and U.S. paper and packaging company, reported
<https://seekingalpha.com/article/4426392-cascades-inc-cadnf-ceo-mario-plourde-on-q1-2021-results-earnings-call-transcript>
that
OCC prices during the first quarter were 97% higher than in the first
quarter of 2020. OCC prices were 9% higher than in the fourth quarter of
2020.

“This reflects the high domestic demand levels for this fiber as
containerboard production levels have responded to pandemic buying patterns
and export activity,” said Mario Plourde, CEO of Cascades.

Cascades reported overall “increased activity” in the recovered paper
market in the first quarter. “Domestic demand remained robust and export
prices [remained] high, with limited container availability and port
congestion,” Plourde said. That being said, the company has not had
difficulty securing fiber recently, he said.

As a whole, mill operators anticipate OCC prices will rise moving forward
in 2021.

Packaging Corporation of America CEO Mark Kowlzan said
<https://www.fool.com/earnings/call-transcripts/2021/04/27/packaging-corp-of-america-pkg-q1-2021-earnings-cal/>
he
is “certainly expecting they’ll move up in the second quarter and for the
full year.” He said OCC prices could be up by close to 50% more than the
2020 average.

“Something in that ballpark is what it seems like right now,” he said.

Sonoco Chief Financial Officer Julie Albrecht said the company anticipates
“continued headwinds in OCC cost escalation this year,” and company
Executive Vice President Rodger Fuller said the company expects OCC could
reach higher than $120 per ton during the second quarter.

“That’s more than probably it was expected 30 days ago, but you know,
everyone knows the strength of the containerboard market, that continues,”
Fuller said. “We’re seeing very strong bids for any new open opportunities
that come forward for future contracts for OCC. We’re starting to see some
more availability of containers – still pretty tight but they’re becoming
available. So you’ll start to see more exports. So all of that in our
opinion is going to drive OCC up a little bit further than what was
expected probably 30 days ago.”

WestRock Chief Financial Officer Ward Dickson shared similar sentiments,
stating that “the single biggest driver of inflation for us, and I’ve been
signaling this all year long, was going to be recycled fiber.”

Cascades saw higher generation of recovered fiber toward the end of the
first quarter, and the company sees that continuing. “We expect similar OCC
dynamics to persist for the coming months, with domestic demand remaining
robust, persistent export activity and OCC trading [within] a narrow range
of the current level,” Plourde said.

The company also reported there is high export activity, mainly to India,
which is by far the largest importer
<https://resource-recycling.com/recycling/2021/05/25/paper-and-plastic-exports-increase-in-the-first-quarter/>
of
U.S. recycled fiber.
Status updates on recycled fiber projects

Several paper mill operators discussed their efforts to add recycled fiber
capacity at their facilities.

Packaging Corporation of America announced that it completed its Wallula,
Wash. recycled fiber conversion and started it up in February. Kowlzan
noted that the recycled fiber line gives the company greater flexibility in
feedstock sourcing. But he also described how it is beneficial for the
fiber production process.

“Recycled fibers of any kind drain and dry much more easily than virgin
fiber,” Kowlzan said. “And so, by mixing now the OCC in with our virgin
kraft fiber at the Wallula mill, we’re seeing, as we expected, much higher
speeds on the machines.”

Since starting the OCC line, the Wallula mill has been able to add about
100 tons per day more production on one of the facility’s paper machines,
he said.

Cascades plans significant investment in a recycled fiber mill conversion
in Virginia this year. The company first released its plans
<https://resource-recycling.com/recycling/2018/07/31/containerboard-mill-conversion-will-incorporate-mixed-paper/>
for
the Bear Island, Va. newsprint mill in 2018, noting the company would
convert the mill to produce recycled containerboard in the next few years.
The company most recently announced
<https://www.cascades.com/en/news/cascades-green-lights-bear-island-project-concurrently-announces-cad125-million-bought-deal>
it
is proceeding with the project late last year.

In its recent earnings call, the company announced it has budgeted $250
million for the Bear Island project for 2021. In last year’s release, the
company floated a full-project budget of $380 million.

Charles Malo, Cascades’ president and chief operating officer, said the
site is “progressing well” and is on schedule. He said Cascades aims to
start up the converted mill in December 2022.

Malo added the company’s initial goal is to secure 150,000 tons per year of
inbound fiber for that mill. Ultimately, the company plans an annual
production capacity of 465,000 short tons, reaching full scale by the end
of 2025.

Sonoco officials reported progress on the company’s recycled fiber mill
project in Hartsville, S.C., dubbed Project Horizon. This project was first
announced
<https://resource-recycling.com/recycling/2020/04/14/sonoco-invests-to-use-more-occ-and-mixed-paper-in-us/>
in
April 2020, and it includes converting a paper machine to produce 180,000
tons per year of recycled paperboard.

During the recent call, Sonoco CEO Howard Coker said the project had “a
slow start due to the pandemic,” which delayed the conversion by one
quarter. But he said the company is making solid progress on it and that
Sonoco expects the recycled fiber conversion to be complete by the second
quarter of 2022.

Mill operator Domtar, which last summer announced
<https://resource-recycling.com/recycling/2020/08/11/demand-shift-drives-300-million-recycled-paper-mill-conversion/>
a
recycled packaging mill conversion in Kingsport, Tenn., recently reported
that the project is on schedule and is preparing to begin construction.

“We’ve ordered all our major pieces of equipment, including the OCC
processing equipment” and a linerboard machine, CEO John Williams said.

Domtar was recently acquired
<https://www.businesswire.com/news/home/20210511005392/en/Paper-Excellence-Enters-Into-Definitive-Agreement-to-Acquire-Domtar-for-55.50-Per-Share-in-Cash>
by
Canadian fiber giant Paper Excellence. The sale was announced after the
earnings call, so it was not discussed. The announcement did not touch on
Domtar’s recycled fiber project but did note that Paper Excellence “intends
to continue the operations of Domtar as a stand-alone business entity,” led
by the same management team and operating its existing production
facilities.
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